Tag Archives: community rating

Left on #ObamaCare: high insurance premiums don’t matter, as other people will pay for it

At Forbes, Avik Roy writes:

Over the past twelve months, there has been an energetic debate among health policy researchers about the extent to which Obamacare will increase the underlying cost of individually-purchased health insurance: what observers have come to call “rate shock.” Yesterday, the Manhattan Institute published the most comprehensive study yet on the topic, analyzing premium data from 3,137 U.S. counties, and finding an average rate hike of 49 percent. In response, left-wing bloggers are trying out a new talking point: that rate shock doesn’t matter, because taxpayer-funded subsidies will bear the higher costs.

There are a number of reasons why the underlying cost of health insurance matters.

Read more: Left: Obamacare Rate Shock Doesn’t Matter, Because Other People’s Money Will Pay For It – Forbes.

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As Expected, #ObamaCare Motivates Insurers to Shun the Sickest People

John R. Graham writes:

A patient with HIV/AIDS can expect to pay over $1,000 out of pocket for medicines, if he buys a policy on the ObamaCare health insurance exchange in Florida.

“woman-in-hospitalAffordable”? Surely not. This perceived injustice has caused legal activists to file a lawsuit against four insurers, which offer plans in the Florida exchange, alleging discrimination.

Readers of this blog know that we have long warned against this consequence of ObamaCare. Insurers are not allowed to charge premiums appropriate to applicants’ expected medical claims. …

An ObamaCare Silver policy must pay 70 percent of expected medical costs, while covering 100 percent of “preventive care” (as defined by the federal government). However, the plan is designed for the average patient. So, it is easy for a health plan to design a plan that imposes very high medical maintenance costs on very sick, chronically ill people. High co-payments or co-insurance for prescriptions is one obvious method.

Our prediction: There will be many more such lawsuits.

Read more: As Expected, ObamaCare Motivates Insurers to Shun the Sickest People | John Goodman’s Health Policy Blog | NCPA.org.

In February, Graham blogged about this article from The Hill, which reports: “Consumers who use specialty medications may face higher costs on ObamaCare’s marketplace plans, many of which include co-insurance rather than copayments for the drugs, a new analysis warned.”

Last week, Graham illustrated one more example of insurers avoiding sick patients, this time in relation to how insurers use ObamaCare subsidies:

[P]lans apply more of the subsidy to the deductible, somewhat less likely to apply it to specialist charges, and much less likely to apply it to the most expensive tier 4 drugs on the formulary. What this means is that generally healthy patients who go to see their primary-care physician occasionally, but need no specialist care or specialty prescriptions, are most likely to benefit from the cost-sharing reductions. Those who need specialist care and, especially,  tier 4 drugs will be less likely to benefit.

Back in 2010, Peter Suderman wrote about how insurers tailor their plans to attract the healthy & avoid the sick:

Indeed, because insurers will be limited in terms of how they can charge based on health risk factors, the new rules may encourage plan providers to avoid investing in resources that help the sick.

For example, a 1997 New England Journal of Medicine study looked at billing records for elderly Americans participating in Medicare HMOs in Florida. The study found that, despite exchange-like regulations guaranteeing access to any HMO plan and prohibiting insurer cherry picking (or “medlining,” as it’s sometimes called), insurance companies managed to lure in the healthiest—and cheapest—patients, while leaving the sickest, most expensive patients on publicly funded Medicare.

As does John Goodman, writing about community rating:

When premiums are regulated so that they cannot reflect expected costs, four things will happen:

  1. On the buyer side, people who are under-charged will over-insure and people who are over-charged will under-insure. This is basic economics. If the price you are asked to pay is artificially low, you will buy more than you otherwise would; if the price is artificially high, you will buy less. If you are sick and require a lot of medical care but can pay the premium ordinarily charged to a healthy enrollee, for example, you will likely choose the richest plan you can find.
  2. In order to avoid attracting high cost enrollees, health plans will respond by scaling back their benefits and their provider networks until the richest plans look pretty much like every other plan. In the individual market today, in most states you can buy a BlueCross plan that covers almost all doctors in your area and practically every hospital, including all the best hospitals. I predict those plans will never see the light of day inside the (ObamaCare) health insurance exchanges. See Monday’s Health Alert on the race to the bottom with respect to access to care.
  3. At the same time, health plans will seek to attract the healthy. Of course, to a certain extent they are doing that today. But with an electronic exchange in which healthy people tend to buy on price and sick people tend to buy on benefits and software that makes it easy to do those things, the insurers will be even more pressured to reconfigure their offerings to make them more attractive to the healthy and less attractive to people who need medical care.
  4. Finally, the perverse incentives do not end at the point of enrollment. They continue. Health plans will have perverse incentives to over-provide to the healthy (to keep the ones they have and attract more of them) and to under-provide to the sick (to avoid attracting more of them and encourage those they have to go elsewhere).

See also this Reuters article: “Chronically ill facing high drugs costs under U.S. health law“:

Insurers say they had to move toward greater cost-sharing due to higher prices for new drugs, some of which can cost more than $100,000 annually per patient.

Researchers also say the higher rates help insurers bankroll low monthly premiums to attract healthy young enrollees.

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LA Times: “States worry about rate shock during shift to new health law “

The LA Times reports:

Exactly how high the premiums may go won’t be known until later this year. But already, officials in states that support the law have sounded warnings that some people — mostly those who are young and do not receive coverage through their work — may see considerably higher prices than expected.

That is because of new requirements in the law aimed at making insurance more comprehensive and more affordable for older, sicker consumers. …

Oregon’s insurance commissioner, another supporter of the law, said new regulations could push up premiums for young customers by as much as 30% next year. He urged administration officials to slow enactment of the new rules.

via States worry about rate shock during shift to new health law – Los Angeles Times.

In 2010, the AP reported:

Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press. The analysis did not factor in tax credits to help offset the increase.


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Obamacare’s not-so essential benefits

In the Providence Journal, Sally Pipes of the Pacific Research Institute writes:

Federal officials at the Department of Health and Human Services just finalized rules governing health insurance for individuals and small businesses purchased through Obamacare’s new exchanges. The announcement brings us a step closer to a health-care system wherein spending continues to grow rapidly while basic coverage remains unaffordable.

Just look at what will be considered “Essential Health Benefits” (EHB). Starting in 2014, insurance plans must cover everything from mental-health and drug-abuse treatments to dental and vision for children — regardless of
whether patients want or need them.

Mandating such generous health plans for all will surely drive premiums through the roof. …

In Connecticut, for instance, insurance mandates account for 22 percent of premiums for group coverage and 18 percent for individual plans, according to the University of Connecticut’s Center for Public Health and Health Policy. …

Indeed, patients between ages 18 and 24 can expect their premiums to rise by roughly 45 percent. Those aged 25 to 29 will see a 35 percent jump, according to a study from Oliver Wyman, a consultancy. The same study showed that a three-to-one age band would drive half a million young Americans out of the insurance market.

Read more: Obamacare’s not-so-essential benefits.

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Reuters: One-third of senior executives “are holding back hiring because of” Obamacare

Reuters reports:

In Adecco’s poll of senior executives, 55 percent named healthcare benefits as their biggest current business challenge, and about a third say they are holding back hiring because of healthcare reforms introduced by U.S. President Barack Obama.

Obama’s 2010 healthcare law, upheld this year by the U.S. Supreme Court, is expected to raise insurance costs for employers because it calls for wider coverage of more people, including those with pre-existing medical conditions.

Read more: Healthcare costs top U.S. executives’ concerns: Adecco survey | Reuters.

via NCPA


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ObamaCare’s perverse incentives harm those with pre-existing conditions

In the Wall Street Journal, John C. Goodman writes:

But when insurers are forced to charge the same premium to all applicants, regardless of expected health-care costs, prices will be wrong for everyone—and both buyers and sellers of health-care policies will have perverse incentives.

On the buyer’s side, healthy people who are overcharged will underinsure, buying less coverage than they otherwise would. They may even decide to go without insurance, since the ObamaCare penalties for being uninsured are weak and people can always buy a policy after they get sick. People with expensive health problems will overinsure, buying more generous coverage than they otherwise would.

Insurers, on the other hand, will try to sell policies to the healthy, on whom they expect to make a profit, while avoiding the unhealthy, on whom they expect to incur a loss,—and they will change the design of their plans to accomplish this goal.

Preventive care and wellness checkups with no deductible or copayment, for example, will attract and keep the healthy; insurers may even provide memberships in health clubs. But failure to include the best cancer-care center or the top heart clinic in a plan’s network will discourage the sick from enrolling. Insurers may also underprovide for unhealthy people by failing to include the latest cancer drugs in their offerings.

Goodman offers better alternatives than price controls:

  • equalizing the tax treatment of insurance, in the individual and group markets
  • high risk pools
  • health status insurance

Read the whole article for details: The Better Solution for ‘Pre-Existing Conditions’. Or better yet, check out Goodman’s new book.


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Supreme Court & Health Care: Force Begets Force Under Health Mandates

At the Objective Standard blog, Ari Armstrong writes:

The Supreme Court heard oral arguments Tuesday pertaining to the ObamaCare insurance mandate. At issue is whether the federal government may force people to purchase health insurance. The arguments demonstrate that the mandate is a response to the problems created by other government controls of health care and insurance.

Then he provides two excellent examples, and a quote by Justice Sonia Sotomayor that displays statism by implying that if something is worth doing, government must force people do it. Armstrong concludes:

The Supreme Court should do its job and limit Congress to its specifically enumerated powers. And regardless of how the Court rules, Congress—rather than attempt to mitigate the consequences of its existing controls by means of a new mandate—should roll back all its controls, protect rather than violate freedom of contract in the health insurance market, and leave Americans free to choose how to finance their own health care and whether and to what extent to provide charity.

Read the whole post: Force Begets Force Under Health Mandates.

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